Independent audit exercise: A means to an end to the practice of budget padding

The Menace of Budget Padding: Addressing a Growing Concern in Nigeria

Barely a week ago, a report in one of our print media carried a striking headline: “₦105.8bn Budget Padding Scandal: Three Institutions Implicated, 182 Fraudulent Projects Uncovered.” Such alarming headlines highlight the persistent struggle against corruption and financial misconduct within our system.

Beyond the sheer magnitude of the sum involved, this revelation raises serious concerns, particularly at a time when Nigeria is facing an economic crisis exacerbated by declining oil revenues and high inflation. Yet, certain individuals and groups continue to exploit the nation’s resources for personal gain through a fraudulent practice known as budget padding.

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Understanding budget padding

Budget padding is a deceptive practice wherein individuals or groups artificially inflate a proposed budget to secure excessive funding for a project. This manipulation allows for the expansion of a project beyond its actual requirements or creates a financial cushion for unanticipated expenses.

Essentially, budget padding involves inflating project expenses or understating projected revenues to justify an artificially high budget. The ultimate objective of such fraudulent actions is to mislead the approval authorities into allocating more funds than necessary, thereby creating opportunities for financial misappropriation.

Strategies to curb budget padding

Eradicating budget padding requires the implementation of robust financial oversight mechanisms. Effective measures include, but are not limited to:

Internal check systems: Establishing rigorous internal controls to detect discrepancies and prevent fraudulent activities.

Internal auditing: Conducting periodic internal audits to ensure compliance with financial regulations.

NOCLAR (Non-Compliance with Laws and Regulations): Encouraging financial professionals to report irregularities in line with ethical standards.

Whistleblowing mechanisms: Providing secure channels for individuals to report financial misconduct.

Budget scrutiny exercises: Subjecting budget proposals to rigorous vetting processes before approval.

Independent audits: Engaging external auditors to evaluate financial records objectively.

“This manipulation allows for the expansion of a project beyond its actual requirements or creates a financial cushion for unanticipated expenses.”

The role of independent audits

An independent audit is a comprehensive examination and evaluation of an entity’s financial records and supporting documents by an external auditor. This process enhances the credibility of financial statements and ensures transparency.

Independent audits can take various forms:

Compliance audit: Assesses whether an entity adheres to internal control measures, legal requirements, and regulations.

Financial statement audit: Evaluates whether financial statements accurately represent an entity’s financial position based on established accounting standards.

Operational audit: Reviews an organisation’s efficiency and effectiveness in resource utilisation.

Information Technology (IT) audit: Examines an organisation’s IT systems, operations, and controls to ensure security and efficiency.

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Potential benefits of independent audits

Properly executed independent audits yield numerous benefits, including:

Prevention and detection of fraud: Identifying financial discrepancies and curbing fraudulent activities.

Enhanced compliance: Reinforcing adherence to financial regulations and internal controls.

Improved accountability and transparency: Strengthening financial management and reducing opportunities for misconduct.

Boosted public trust: Increasing the credibility of financial statements in the eyes of stakeholders, including vendors, government agencies, donor organisations, financial institutions, and multilateral institutions.

Deterrence against fraud: Serving as a preventive measure against corrupt practices such as budget padding.

Conclusion

Implementing independent audit exercises in government and corporate financial systems is a critical step toward mitigating the menace of budget padding. By reinforcing transparency, accountability, and strict compliance with financial regulations, independent audits will enhance public trust in financial statements and ensure that national resources are allocated responsibly. More importantly, adopting these measures will significantly reduce financial malpractices that continue to undermine Nigeria’s economic stability.

Kingsley Ndubueze Ayozie- FCTI, FCA a Public Affairs Analyst cum Chartered Accountant by profession, writes from Lagos.